Aviva plc: Worldwide long-term savings new business– 12 months to 31 December 2008
Long-term savings
North America
In the United States, sales increased by 57% to £5,715 million (2007 restated: £3,646 million). On a local currency basis sales were up 45%. This is the second consecutive year of record volumes despite the significant challenges in the financial markets, which have changed the competitive landscape and shaken consumer confidence. We retained our number one sales position in both the indexed annuity1 and the indexed life2 insurance markets in the third quarter and have already doubled the sales in our US business within two years of the acquisition of the former AmerUs business, which is one year ahead of the stated target3.
Sales of annuities increased by 63% to £4,244 million (2007 restated: £2,600 million); a significant accomplishment given the challenging economic environment, volatile equity markets and changing interest rates. This growth is equivalent to a 51% increase on a local currency basis and reflects our expanded distribution, new product launches and successful marketing programmes. In times of economic uncertainty customers look for guarantees and we responded by enhancing our products to meet their needs, by improving guaranteed income withdrawal benefits and introducing a new bonus index deferred annuity.
The U.S. Securities and Exchange Commission (SEC) has adopted a new rule (Rule 151A) which classifies equity indexed annuities as securities for federal regulatory purposes (on contracts issued on or after 12 January 2011). The ruling creates additional administration for companies providing these products and requires agents to be licensed to sell them. We actively participated in the SEC consultation process and have already taken preliminary steps to ensure that we will be ready for the new rule. We currently anticipate that the cost of completing these steps and the impact on our business will be minimal. Indexed products meet an important customer need and they will continue to be part of our product suite for the foreseeable future.
Sales of life products, which mainly include indexed and non-indexed universal life and term assurance products, totalled £623 million (2007 restated: £617 million), which is equivalent to a 7% fall on a local currency basis. This result is a reflection of our tactical decision to exit certain markets in late 2007, because we wanted to focus on selling higher margin products. New product launches, marketing programmes and growth in the indexed life insurance market have all had a positive impact on our results. In particular, our “Wellness for Life” programme has been well received. This is a first-of-its-kind life insurance product which rewards healthy behaviour and supports the customer with wellness products and services from Mayo Clinic Health Solutions, a division of the world-renowned Mayo Clinic. In addition, the new term assurance products we launched in the third quarter of 2008 have been well received and are starting to gain momentum.
Funding agreement sales were very strong at £848 million (2007 restated: £429 million), which represents an increase of 98% over the previous year. Volatile investment markets created a favourable environment for funding agreements, which are large corporate transactions.
In 2008 we were focused on an aggressive growth agenda. In 2009, the priorities will be profitability, productivity and capital efficiency. Aviva will put emphasis on retaining customers and key distributors and will focus on high-value products which meet consumers’ needs, such as those with guarantees. While we plan to remain a market leader in the annuities market, growth is expected to be more in line with the overall market in 2009. We also expect to maintain our market leadership position in the indexed life insurance market. While they will not be a primary focus for 2009, we will evaluate funding agreement opportunities on a case-by-case basis.
- An indexed annuity is a type of deferred fixed annuity whose credited interest is linked to an equity index. It guarantees a minimum interest rate if held to the end of the surrender term and protects against a loss of principal.
- Indexed life products are fixed products that include a savings element linked to an equity index. Minimum guarantees exist on the indexed life products and generally range from 1% to 3%.
- The USA growth target was to double 2006 pro forma sales within three years of the acquisition of AmerUs. Pro forma sales are calculated as the combined sales of the former Aviva business based in Boston and the former AmerUs group, on a local currency basis.
